Posted
by
timothyon Friday October 15, 2010 @01:53AM
from the shades-of-eudaemonia dept.

An anonymous reader submits news of the conviction of two Norwegian day traders, Svend Egil Larsen and Peder Veiby, who were on Wednesday fined and given suspended sentences (Norwegian court, Norwegian document) for cleverly working out — and cashing in on — the way the computerized trading system of Interactive Brokers subsidiary Timber Hill would respond to certain trades. They used the system's predictable responses to manipulate the value of low-priced stocks. The pair have gotten some sympathetic reactions from around the world, and promise to appeal.

So these guys figured out how to second-guess somebody's trading algorithm. How in hell is that a crime?

Many mechanical trading algorithms are also trying to second-guess the actions of other market participants in order to make a profit. These guys just did the same, apparently in cases where the trades made by a particular mechanical algorithm would be big enough to move the market themselves.

Mechanical trading algorithms are either fair game, or preferably, should be illegal. If mechanical trading algorithms are legal, then what these men did should definitely not be illegal.

I read about this case a while ago. It seems amazing that the people who are actively manipulating the market with thousands of automatic trades every minute are being protected, while the little guy who figured out how to win over the machines gets convicted. The idiocy of allowing robot traders to roam free should be very obvious after it caused the market to take a steep dive for no reason. But no, robot trading is being encouraged! Money talks.

That is exactly what I came here to say. I can be grudgingly convinced to accept auto-trading, after all it only takes a small portion from me since I make longer term trades, but when they convict people for this.......my support is gone. Where do I sign the petition to get rid of high speed trading? This is garbage.

A HFT is like a shop assistant getting a (tiny) cut of each transaction they process. They sit in between buyers and sellers collecting pennies, like market makers but without having to guarantee a market.

It seems amazing that the people who are actively manipulating the market with thousands of automatic trades every minute are being protected, while the little guy who figured out how to win over the machines gets convicted.

Not really. It's just nobility closing their ranks and watching each other's backs, least a peon would become their equal.

The stock market is a casino. The banks and hedge funds is "House". As far as the government is concerned it's OK for banks and hedge funds to manipulate, but not for the little guys. If you screw with the house they wipe the floor with you.

>>So these guys figured out how to second-guess somebody's trading algorithm. How in hell is that a crime?

Not quite.

If they had figured out how to predict where somebody else's algorithm was trading, and trade against it for profit, they would not be in trouble.

What they did was figure out how somebody else's algorithm would react to stimulus, then entered created that stimulus, then traded against the result.

They entered orders that had no intention of getting a trade (and indeed would have been unhappy to have traded because they were unnaturally high bids or low offers). These orders gave the impression to both people and software that the market had changed for real. The algorithm followed the "fake" data and made too high of a bid or too low of an offer. They then cancelled their "fake" orders and instantly entered real orders on the opposite side to hit the algorithm.

This has been going in (sans computers) for decades, and is illegal in most regulated markets.

It is similar to the idea of leaking fake news and trading against the move and then making a profit when people figured out it was fake.

I can't speak for all of HFT, but for the most part they would be more than happy to get filled, but they don't get filled because they move too fast.

They are calculating a theoretical price and placing orders that would theoretically be good to fill and that are very close to or at the "inside" (best bid or best offer). The inputs into their theoretical model change frequently and they cancel and replace their orders frequently, most often before they have a chance to get filled.

Not that I agree but to play devils advocate.
Do we really want to turn the stock market into any more of a ‘game’ then it’s already turned into. We’d have computers with billion dollar portfolios all bidding each other trying to find the others algorithms out.
Remember when Proctor and Gamble and Accenture dropped like 99% of their value in just a few mins? Imagine that happening too 100s of stocks everyday as the computers attempt to trick each other into making mistakes.
Now sho

The last time I looked, computers did not program themselves. Someone had to develop these algorithms. Someone had to write the code to implement them. More importantly, someone had to make the decision to attempt to use such algorithms to make money (I use the word "make" loosely here -- I think that such algorithms really just effect a transfer of money without any added value).

Don't code a strategy, code a strategy for finding strategies. Heck, cheap low volume stocks are the natural place for it to test strategies due to the lower buy in, and with an explicit "magic 1, buy low, magic 2, sell high" pattern, the 'bid high' magic is a remarkably short permutation and should be run across relatively quickly.

It's a crime because you're exploiting a weakness in a computer system, and cheating people out of cash

Why does it become a crime when you do this to an algorithm, but it's ok to do it when dealing with people? Someone has allowed a computer algorithm to monitor the market and buy and sell using their money. You're saying that they should get protection when the system doesn't work? It's not like they hacked the machine, they made transactions that the machine misinterpreted.

Am I the only one to see something wrong with this argument? Yes it's in "cyberspace" (ugh) but that's exactly why it's not wrong.

Price is not the same as value. If I go to the open market shouting "I'll buy all your eggs at $10 each" and you go scrambling to buy them at $11, you're the stupid one.

If you blindly accept that the *value* of X is whatever the highest bidder says it is, you're pretty dumb. If you now set up an automated system that buys X at that price, you're even more stupid and deserve to be

I think it might be less obvious if you had a group of people with different accounts to share the profit around, but then you'd probably end up being prosecuted for conspiracy to defraud or terrorist money-laundering or something as well...

It's a crime because you're exploiting a weakness in a computer system, and cheating people out of cash. Same as if you find a bug in MS and infect everyones computers with a trojan, intercept their paypal passwords, and steal the money in those accounts. The fact that you steal from cyberspace rather than a physical person, that's irrelevant.It's illegal, plain and simple.

Uh what do you think these HFT computers are doing TO EACH OTHER 24/7? The EXACT SAME THING these guys did, only much faster! Competition among high-frequency traders is just a big hacking game, too bad it's played in real life with real-world money...

Really this is like some guys getting in a gunfight while the cops just watch and munch on their donuts, but when some other guy joins in they tase him and haul him off...while the original gunfight continues.

I didn't RTFA (of course), but how is what they did different from guess what real people would respond to certain trade and engineer to profit from that? Isn't that what every speculator is trying to do? If someone used a program to trade and other people guessed (without foul play) how the program responds and profited from it, why is that a crime?

As for "manipulating prices", well, every investment firm is manipulating prices when they release analyst reports recommending "buy" or "sell" for stocks they own, I would like to see them prosecuted too!

I know the guys at Timber Hill from before IB bought them. They are what one would calls pros. It is hard to think of them as victims. They have all the money hardware and brains a company could want. Actually, I would call Timber Hill fairly predatory. These guys were printing big money through high speed algo trading before anyone knew what that was back in 2000.

Knowing them, I doubt they are happy that their name is in the news. Years ago, they truly didn't want any attention. The less the outside world knew, the better.

The big issue is: this is essentially what all the high speed traders are doing. The line here is fuzzy. However, I fear these Norwegian fellows are being held to a higher standard than people who are more powerful and more established.

Does anyone have a link to a human translated version of the Norwegian court doccument so we can get a more impartial view of the facts of this case? On the one hand we have a sensationalist news article without many facts and a blogget response with no facts and all rhetoric that claims to not be political yet says that they would be considered a liberal for making such an observation in the same sentance. I for one would like to see the facts of the case without all the opinions getting in the way from th

If that's the case, I'm surprised the Norwegians were prosecuted at all. Surely the complaint must have originated from Timber Hill itself, unless it involved Norwegian stocks that the regulators were monitoring. But why would Timber Hill initiate action over such a small sum of money (the article mentions £18,000 and £11,500)?

"It startled him even more when just after he was awarded the Galactic Institute's Prize for Extreme Cleverness he got lynched by a rampaging mob of respectable physicists who had finally realized that the one thing they really couldn't stand was a smartass."

Two Norwegian day traders have been handed suspended prison sentences for market manipulation after outwitting the automated trading system of a big US broker.

The two men worked out how the computerised system would react to certain trading patterns - allowing them to influence the price of low-volume stocks.

The case, involving Timber Hill, a unit of US-based Interactive Brokers, comes amid growing scrutiny of automated trading systems after the so-called "flash crash" in May, when a single algorithm triggered a plunge in US stocks.

Svend Egil Larsen and Peder Veiby had won admiration from many Norwegians ahead of the court case for their apparent victory for man over machine.

Anders Brosveet, lawyer for Mr Veiby, acknowledged that his client had learnt how Timber Hill's trading algorithm would behave in response to certain trades but denied this amounted to market manipulation. "They had an idea of how the computer would change the prices but that does not make them responsible for what the computer did," he told the Financial Times. Both men have vowed to appeal against their convictions.

Messages posted on Norwegian internet forums on Wednesday indicated widespread sympathy for the defendants. "It is the trading robots that should be brought to justice when it is them that cause so much wild volatility in the markets," said one post.

Mr Veiby, who made the most trades, was sentenced to 120 days in prison, suspended for two years, and fined NKr165,000 ($28,500). Mr Larsen received a 90-day suspended sentence and a fine of NKr105,000.

The fines were about equal to the profits made by each man from the illegal trades.

Christian Stenberg, the Norwegian police attorney responsible for the case, said any admiration for the men was misplaced. "This is a new kind of manipulation but it is still at the expense of other investors in the market," he said.

Interactive Brokers declined to comment.

Irregular trading patterns were first spotted by the Oslo stock exchange and referred to Norway's financial regulator.

All of this is a symptom of how far the stock market has branched from its purposes - it's not just a way people have involved distributed judgement of the worthiness of societal ventures anymore, now we have huge parasites in the system, feeding on each other. When the boot comes down, I don't think we should cry. Only a few of these people make an honest living that benefits society.

All of this is a symptom of how far the stock market has branched from its purposes - it's not just a way people have involved distributed judgement of the worthiness of societal ventures anymore,

It hasn't been that for at least 50 years. Speculation has been the dominant market force for a very, very long time. It just never made as much headlines until recently.

now we have huge parasites in the system, feeding on each other.

We've had that since the first investment companies came into existence. It took what, three weeks at best?, until someone realized that investing in the future of a company is slow and risky, while cashing in on the expectations of those who are still dumb enough to do that is faster and safer - there are few things as certain as the stupidity of a large group of people.

Take Apple stock. What's the actual value in buying Apple stock? The only value seems to be from selling it again to someone else who wants to buy it so that they can sell it again to someone at a higher price.

Now I'm not well versed in this stock market thing but I'm pretty sure companies are supposed to release dividends. They pay some amount of money per stock. So if you have lots of stocks you get lots of money. I don't know when or how this happens though.

If I get this right, someone is convicted for cleverly working out how a system works that cleverly works out how other systems in the market work (which is what an Algo in principle is). If I pare this down to the essentials, it seems this person is convicted of focusing on one particular trader instead of the whole market.

That's going to be interesting from a legal perspective, because there's nothing illegal in what he has done as far as I can see, unless he had insider knowledge. It's a bit like learn

Doing any action with the primary purpose of manipulating share prices is illegal, and that's what it sounds like was going on here. They sold stocks with the intent of making that system behave stupidly.

Although you are probably not aware of it, most trading arms of the banks are at war against each other, trying to determine the trading algorythms each of them use, and deploy trading engines that take advantage of any weaknesses. It's one of the reasons you see an immense amount of mathmatical talent recruited by the Banks.

The problem I find with this, is that, unless the t&cs they signed to indicated that they should report any flaws in the bank's trading system, then this is actually a failure on the bank's part to test their systems.

I'm not a lawyer and I don't speak Norwegian so I can't read the court document to find out exactly what happened.
I am, however, an electronic trading specialist and I've also been a trader at a big American investment bank (one that didn't go bust, by the way, despite my best efforts).

Rumour has it that these guys realised that there was a flawed algorithm (which turns out to have been operated by Timber Hill) making a market in illiquid shares, which set its quotes based either on the prices at which recent trades in those shares had been done, or on the algorithm's own position in the stock.

To give some background: if you are making a market in a stock, that means you are prepared to buy from people who want to sell and sell to people who want to buy. Unless you're feeling particularly generous, you want to buy at a "low" price and sell at a "high" price. In liquid markets (i.e. where there are lots of people buying and selling), you can typically rely on the market mid price (i.e. the best bid plus the best offer, divided by two) and "spread" off that (e.g. add a cent to it to get your ask, subtract a cent from it to get your bid). As the market (i.e. the mid price) moves up and down, you can adjust your bid/ask to follow it and, if you end up buying or selling stock, you can adjust your bid/ask to make it more likely that your quotes get hit/lifted to flatten out your position (e.g. if someone hit your bid and sold you shares, you would probably lower both your bid and your offer, in relation to the market, to make it more likely that someone will buy the shares off you and less likely that you'll buy more shares).

However, in illiquid markets and, in particular, in markets where you are the only market-maker, you may not be able to rely on a market mid, because you are the market, so it's up to you to set the price.

So, let's say you start off with a quote of 99.99/100.01 and a quantity of 10,000 on each side. I come in and lift your ask (i.e. I submit an order to buy at 100.01, which matches against your ask) to the tune of 1,000 shares (i.e. I buy 1,000 shares from you). You are now "short" 1,000 shares, so you might adjust your price to make your bid more attractive to potential sellers - i.e. you change your quote to 100.00/100.02 - and you keep quoting with a 10,000 quantity on either side.

I buy another 1000 shares from you. You shift your quote to 100.01/100.03

I buy another 1000 shares from you. You shift your quote to 100.02/100.04

I buy another 1000 shares from you. You shift your quote to 100.03/100.05

I now own a total of 4000 shares, for which I paid a total of [(1000*100.01)+(1000*100.02)+(1000*100.03)+(1000*100.04)=] 400,100

I now hit your bid and sell you back all 4000 shares at 100.03 for a total of 400,120

I just made myself $20. Thanks very much. Rinse, lather, repeat.

Now, you can see how some people might claim that I'm manipulating the market because I'm issuing orders into the market with the intent/expecation that the price will move as a result. But it's all a bit of a grey area.

However, I might argue that I'm merely taking advantage of bids and offers that are already in the market. If the market-maker on the other side wants to quote prices that allow me to make a profit (or, more accurately, if he's been stupid enough to roll out a market-making algorithm that does that), then why shouldn't I take advantage of it?

If this is what happened, then I'm surprised that Timber Hill decided to make an issue of it. If I'd been that stupid, I probably wouldn't want to draw everyone's attention to it. I would put the loss (which is this case appears to have been kless than $70k) down to experience, fix my algorithm and move on.

People/banks/brokerages/traders/hedge funds do make mistakes like this. A long, long time ago, when I was younger and far more stupid than I am now, I once gave a trader a market-making algorithm that used the market

Maybe a silly or naive question, but why would any one person want to simultaneously buy and sell the same stock? If I want more of it, I will put in a bid to buy and if I want less of it then I will offer for sale. Which I do at any one time might change with the price that other people are offering or asking, but at any one time I would be either bidding to buy or offering for sale - not both at the same time.

Well, in an ideal world, you profit from the spread - e.g. you buy at 99.99 and sell at 100.01, thereby making a profit of $0.02 on each share. That's what happens in liquid markets, where there are plenty of buyers and sellers putting in market orders.

It's not really all that different to what Asda does with cans of beans - buy 'em from one person and sell 'em to another for a higher price.

There are "official" market makers on the NYSE and (I think still) on the London Stock Exchange.

I'm not a lawyer and I don't speak Norwegian so I can't read the court document to find out exactly what happened.

I am, however, an electronic trading specialist and I've also been a trader at a big American investment bank (one that didn't go bust, by the way, despite my best efforts).

...snip...

Thanks very much. Rinse, lather, repeat.

I am not an electronic trading specialist, and I've never been a trader at a big American investment bank (but we're equal in that I've not made one go bust, by the way, but I managed it by giving it no effort at all).

I have, however, found a bug in one of your algorithms. Lathering after rinsing doesn't work so well.

Having glanced at the curt document it looks they used this method. They were caught by an automatic monitoring system, not Timber Hill, and it's noted that Timber Hill has changed their algorithm since then (but nothing about them making an an issue out of it.)

It looks like they started out slow, but got bolder and eventually the stock exchange shut down to investigate. Bet they got a chill when that happened.

Here's an industry related question, how does high frequency trading benefit the general public? The push towards regnms, the push towards faster and faster executions---how does all this benefit Joe Investor? What is SEC thinking?

I doubt Joe Investor cares if his trade executes within a microsecond or in a few minutes. I even doubt he cares that much about the 1% price difference he may enjoy (or regret) from his investment within a week.

So why is everyone in the industry assuming Joe Investor is a day-trader with an algorithm at his desk? Even the active investors I've met keep stocks for sometime---the only "day-traders" I've met aren't in the investment business---they're there to benefit from minute-by-minute price fluctuation---leaching (by tiny amounts) the profits of long term participants.

I guess what I'm saying is, if high frequency trading is a billion dollar industry---those billions of dollars, in small amounts, were directly taken out of pockets of long-term investors---they're the inefficiency in the market.

I think the main argument is that Joe Investor benefits from having more liquidity. He can buy/sell a larger amount of shares than he would otherwise. Remember many people invest via huge pension funds, which have to shift pretty large amounts of shares.

Here's an industry related question, how does high frequency trading benefit the general public? The push towards regnms, the push towards faster and faster executions---how does all this benefit Joe Investor?

The prominence of HFT does two things. Firstly, it makes the market liquid and more efficient - the difference between the prices at which Joe Investor can buy or sell a stock is probably down to fractions of a penny. Which you don't notice on the individual scale, but it improves the functioning of t

If this is what happened, then I'm surprised that Timber Hill decided to make an issue of it. If I'd been that stupid, I probably wouldn't want to draw everyone's attention to it. I would put the loss (which is this case appears to have been kless than $70k) down to experience, fix my algorithm and move on.

It must be noted that TMB did not react or care at all. It was Oslo Stock Exchange (OSE) who made an issue of this and made The National Authority for Investigation and Prosecution of Economic and Environmental Crime in Norway (ØKOKRIM) take it to court. Timber Hill has made no comment, refused to appear in court and generally appear to want this to quietly go away.

> Can someone tell me why what they did was illegal? i.e. What are the limits?

Put simply, they took the piss. Personally, I think they got off quite lightly because, if I recall correctly, the FSA's investigation revealed that they had planned to "drive up" the futures market which, to me, is almost a dictionary definition of market manipulation.

It's like the difference between saying "I reckon the price of silver is going to go up, so I'm going to buy some silver so I can sell it later at a profit" and saying "Hey, let's buy up all the silver in the world so we can corner the market and make a killing!"

Everyone with half a brain knew that what they had done was possible but our guys had rejected the idea without giving it any serious consideration because they knew it was deeply, deeply dodgy (in a bad way, that is) from a legal perspective.

I am Norwegian, soon-to-be a lawyer and a computer scientist ( with some experience with day trading, eps. in the norwegian market )

As many of you have pointed out, and wanted to know: What are these young men charged with and convicted of ? Is it winning over an algo? Outwitting another "player in the market" ? Winning over the "big guys" ?

Of course not. It is not illegal to be smart, nor to make money in the stock market by "outwitting" someone - or something.

Sorry, what? They manipulated the market by buying and selling stock? How could they be convicted for trading? How can a buy or a sale constitute a "misleading signal"? Misleading whom? In relation to what fundamental truth?

All stock trading changes the market. Does the system they beat have algorithms for anticipating the results of its own trades on the market? If so, why aren't the owners of the system being brought up on charges for manipulating the market?

No, the reason these guys were brought up on charges was because they aren't a big investment house, and beat a big investment house at its own game, not because they did something that's different from what any stock trader does.

Most stock traders aren't targeting one other stock trader with a series of transactions, they manipulated that robot into giving them arbitrage. However, I thought their defense was quite strong in that a trade is a fact and can never be untrue as such. Poorly interpreting that trade makes you a bad investor. Repeatedly interpreting trades poorly makes you a bad investor with no learning ability. If that was illegal, there'd be lawsuits flying all over the stock market.

It is like card counting. All you do is take play a game according to THEIR rules and be just a bit better at it than an average joe. Use of your memory in a card game is something that the casinos do not like and therefore it is banned.

I don't think it's actually banned, they just ask you to leave if they find out you can do it successfully. They encourage people to try it, as people trying and failing means more cash for the casino.

"In fact they can ban you from their property because "you were winning" and be perfectly within the law."

Which gets you straight into square one: "the reason these guys were brought up on charges was because they aren't a big investment house, and beat a big investment house at its own game".

Casinos are not "just" private property, they are opened-to-the-public bussiness and, as such, subjected to specific normatives regarding access appart from, say, your own home, which basically come down to "you opened

It's not as if they hacked into it and caused it to give them favourable trades. If the thing behaves in a predictable way such that it can be gamed then it's tough titty for the idiot who runs it. What's wrong with exploiting that? You'd do it in a card game and you'd do it in a war.

it's no different to knowing that trader X is Jewish and might be more likely to buy because it's Yom Kippur or whatever.

"High-frequency traders often confound other investors by issuing and then canceling orders almost simultaneously. Loopholes in market rules give high-speed investors an early glance at how others are trading. And their computers can essentially bully slower investors into giving up profits -- and then disappear before anyone even knows they were there. "

"And when a former Goldman Sachs programmer was accused this month of stealing secret computer codes -- software that a federal prosecutor said could "manipulate markets in unfair ways" -- it only added to the mystery. Goldman acknowledges that it profits from high-frequency trading, but disputes that it has an unfair advantage."

In the recent US stock market crash fiasco, it seems that if their "fancy" computer programs screw up, the stock exchange rolls back the transactions. They don't do that for small investors.

Now when small time investors (relatively anyway) beat some computer program at its game, they get convicted.

Profits are for big guys. If you manage to beat them at their own game you must be prepared to spend significant amount of your own proceedings on legal fees. It is still better that legal system in China - you bribe the wrong guy and you get portion of led into your head.

So basically stock market now is just another incarnation of COREWARS?
So a common folk unleashes her DWARF. Then the trading house unleashes ANTIDWARF to get all the money from DWARF. Then two norwegians run ANTIANTIDWARF and eat up both DWARF and ANTIDWARF profits.

That it basically how Dan Simmons describes the evolution of the TechnoCore in "Hyperion"- a huge, and largely malignant cluster of AIs. They start out as a COREWARS-like scenario which gets loose on the net, leading to the evolution of increasingly more parasitic and hyper-parasitic pieces of code that finally reach sentience. Now couple that with the AI-economy from Charles Stross' "Saturn's Children", apply to current trading algorithms and be afraid, be very afraid...

But here's the thing, their behavior wasn't honest or genuinely based on real belief in the value of the stocks.

So... the traders didn't act genuinely based a real belief in the stocks. Unlike the computers that ran the automated trading at the firm, which obviously act geuinely on their real belief in the stocks they are trading, because, well, everyone knows computers are always scrupulously honest.

But here's the thing, their behavior wasn't honest or genuinely based on real belief in the value of the stocks.

No day trader makes decisions based on real beliefs of the value of stocks. That just isn't how day trading works. Day trading is essentially taking advantage of patterns that form in price changes because of the ways that people decide to buy and sell stocks. Read any advanced how-to-day-trade text and you'll see most of it is about psychology, because understanding what other investers are doing allows you to predict how their actions will affect the price of stocks. The entire point is to guess what purchases and sales other traders will make and to make money from the price movement those will create. Which is exactly what this pair did, the only difference being that it was a single automated trader rather than an entire market they were second-guessing.

Lots of words to say, its gambling. Akin to betting on horses. I find it deplorable, but accept that it exists. What I would rather see is much stronger oversight or regulation of this level of gambling and calling it what it is, not "trading". Regulate as strongly as the gambling industry has today.

Joey "Two Tone" is not going to the track to "day trade on horses", he's going there to bet. Betting on a horse has less repercussions, though then betting on investors and stocks. The later effects compan

Bullshit. They did no wrong. The whole stock market thing is based on outwitting other investors. If you choose to let George Soros manage your money, I am free to try and outwit him, taking some of that money if I succeed. How is it different if you let a computer manage your money?

But here's the thing, their behavior wasn't honest or genuinely based on real belief in the value of the stocks.

Do you really think that savvy investors putting money into stock markets or housing markets or CDS or whatever during a bubble really think that the "fundamentals" justify such prices? No. They just think that the stocks will rise *a bit longer* so they better buy now and wait a little longer before jumping off the bubble. People who jump off the bubble too early lose their wall street job. There are even "momentum funds" that simply buy stocks as soon as the price starts rising, and sell shortly after, based on the idea that when a price starts moving up it keeps going up for a little while (and by the way, the fact that these funds make money disproves the random walk model and hence the rational expectations hypothesis). Honestly, any kind of fast trading clearly has little or nothing to do with the *real* value of stocks.

Not to mention algorithm trading... try asking a neural network if it *really really honestly* believes that a certain stock is worth more than its current value.

There are even "momentum funds" that simply buy stocks as soon as the price starts rising, and sell shortly after, based on the idea that when a price starts moving up it keeps going up for a little while (and by the way, the fact that these funds make money disproves the random walk model and hence the rational expectations hypothesis)

Stock market and other economic models are a combination of clever maths and wishful thinking that have only a coincidental correlation with reality.

If it is your computer program and you give it the input you know is going to do what you want, you are responsible for it.This is a more similar to armed bandits coming in town and you telling the folk to come out and check out their guns.But all these analogies are pointless. It is well established that the stock market is a game and the big boys put expensive minds and machines to gain an advantage over the "common" players. It seems that these guys simply beat them at their own game, the "victim" in que

A stock trader is a free actor. It has choices that it can make. For one, the choice to employ an automated system without human supervision, And even the automated system could respond in any way it liked, and was not obliged to respond in the way that these two stock traders envisioned.

A head being subjected to an entering bullet has no choice. It can only follow the laws of physics.In that case, it is not the head that is responsible for what happens to it, but the last person or entity who had a choice in which action to take.

A less-dreadful analogy with guns would be "They knew the hunters were incompetent, so they pointed at the hunters' feet said 'Look, moose!'" Now they may deserve a mild rebuke for confusing the imbeciles, but it's the idiots who pulled the trigger who are responsible for shooting their own feet. In other words, it was the mechanical algorithm's fault, or more correctly th

“They had an idea of how the other person's gun would change the head of that person but that does not make them responsible for what the other person's gun did.”

Fixed that for you. It wasn't their program or their gun. If I walk in on a mugging and the mugger spooks and shoots someone, it's still the mugger's fault. The algorithm got spooked and fucked up, plain and simple.